Construction on the 550,000 square-foot facility, at Grange Castle Business Park in Dublin, will begin this month and should be completed by mid-2009. The company will spend $500 million to construct the datacenter and then more to kit it out with tens of thousands of servers.

Microsoft has been racing against more Web-centric companies like Google and Yahoo to shift some of its business from software applications installed on computers, to services that replicate many of the same functions but are delivered through a Web browser.

To keep up with demand for the services those companies require large datacenters, often built in rural areas that have cheap and plentiful electricity.